“Angel Investor” is the most inappropriate term used in corporate finance. The term was conceived when entrepreneurs saw individual investors as a “white knight” because individuals typically invest in companies at better terms than professional investors (such as Venture Capitalists “VCs”, which is a small subgroup of the private equity industry). Some professional investors have another term they use for these early-stage private investors: fools.

Angel Investors are not angelic. Nor are they fools. There are no harps, angelic glows or halos bequeathed on anyone. Nor does anyone deserve a dunce cap if they invest in a person / business that they really believe in no matter what the terms are. (Maybe some pity, but no dunce cap!)

Angels are private investors and they have been around since money was invented. Investing in private companies – or as most put it, Angel Investing, is the simple the act of parties putting money into a pot to achieve a business objective. And all of the business people involved with the company own a piece of the pot (aka stock, shares, membership units of an LLC, limimited partnership units etc.) Now some business people own more of the pot than the cash they actually put in because they have skin in the game – sweat equity – these are the founders, inventors and early employees that are working for below-market compensation.

The reason I don’t like the term “angel” is because it is very misleading to the nature of the transaction that needs to play out. Investors and entrepreneurs need to come together and agree on the pricing and corporate structure. These are simply business people doing business deals. In my experience, most angels do have some higher calling to their work because frankly their work investing in private companies often underperforms owning other assets – most of which have much less emotional baggage (like owning some shares of Pepsi or Google). These crazy business people invest in private companies because they enjoy some aspect of it – whether it is the bragging rights at the country club, the inside knowledge of the next big thing, adding “board member” to their CV, or just having an excuse to be around the people involved in the company. Frankly, in my experience, these psychological motivators can be as great, if not greater, than the actual potential financial reward at the end of the rainbow.

Angel Investors is a fun buzz term to use, but both parties – the investors and the entrepreneurs – need to keep it real. We are all just business people working on business tractations that will hopefully lead to personal and professional rewards.